Bridging finance does what it says on the tin. It bridges the gap between a payment you need to make at a specific time, and the time when the normal finance for the payment becomes available. Bridging finance is surprisingly flexible and versatile, and is so fast it can help you out in all sorts of situations.
So how do you actually go about getting hold of bridging finance? It’s really not difficult.
Find a lender who provides bridging finance. The best way to find one is to consult a commercial mortgage broker, who can help you choose the most suitable lender for your purposes.
The application process is similar to that for other types of loan, but simpler and quicker. A lot less time is spent on checking out your finances, history, employment etc. The main focus will be on the specific way in which you intend to repay the loan – e.g. sale of a property, arrival of funds from a standard mortgage etc.
The loan will be secured on property in the UK. The lenders will check out your ownership of the property and make a quick appraisal of its value. Most providers of bridging finance don’t insist on being the first charge on the property – though if you already have two or more loans secured on it, there might be a slight delay while they check the equity.
Some lenders will provide non-status loans with no credit checks or references. This is useful not only if you have less-than-perfect credit, but also if you require the loan in a big hurry. Of course these loans will incur higher rates, but can be worth it as a quick solution.
It is possible to have the interest payments on bridging finance rolled into the loan amount. This is very useful if you are temporarily very short of funds but will be able to repay the loan shortly.
Bridging loans are either “open”, if you don’t have a clear idea when your repayment funds will be available, or “closed” if you have a definite date, e.g. a completion date on the property you are selling.
Obviously the repayments on a closed loan will be lower. Open bridging finance will usually be refinanced after a year – after two years you will usually be expected to convert it into a standard loan or mortgage.
So bridging finance is easy to obtain, which makes it very useful in all sorts of situations. But there are at least a couple of things you need to watch out for.
- Interest rates are high – usually at least 2% above bank base rate. They can be higher under certain conditions – e.g. 100% finance, non-status, or on an “open” rather than “closed” basis.
- When your bridging loan is granted, even if it’s an “open” loan, you do need to have a definite plan for repayment. Bridging finance is far too expensive to be sustainable over a long period of time. If your plans are uncertain or fall through, it would be more sensible to convert to a standard loan.
A lot of people are nervous about bridging finance, but there’s really no need to be. It’s true that it’s expensive, but the help it can provide can make it well worth your while. If you are worried, talk to a commercial mortgage broker who can help the process go smoothly for you. It’s there to solve your problems, not create them!
